U.S. Economy Accelerates to 3% Growth in Q2, Boosted by Consumer Spending and Business Investment

The U.S. economy grew at a robust 3% annual rate last quarter, driven by vigorous consumer spending and business investment, according to a revised report released by the government on Thursday.

Initially, the Commerce Department had projected a 2.8% growth rate for the nation’s gross domestic product (GDP) from April to June. The revised figure reflects a notable improvement from the 1.4% growth rate observed in the first quarter of 2024.

Consumer spending, which makes up roughly 70% of the U.S. economy, increased at a 2.9% annual rate last quarter, an upgrade from the previously estimated 2.3%. Business investment surged by 7.5%, with a significant 10.8% rise in equipment investments.

Consumer confidence, as measured by the Conference Board and the University of Michigan, has recently shown signs of improvement. 

“The GDP revisions indicate that the U.S. economy was in good shape in mid-2024,” said Bill Adams, chief economist at Comerica Bank. “Strong consumer spending drove the economy forward in the second quarter, and increased consumer confidence in July suggests that growth could continue in the latter half of the year.”

The latest GDP report also showed a continued easing of inflation. The personal consumption expenditures (PCE) index, the Fed’s preferred inflation measure, rose at a 2.5% annual rate last quarter, down from 3.4% in the first quarter. Core PCE inflation, which excludes volatile food and energy prices, increased at a 2.7% rate, down from 3.2% in the previous quarter. 

A key GDP measure of underlying economic strength grew at a 2.9% annual rate, an improvement from the 2.6% growth seen in the first quarter. This measure excludes volatile items like exports, inventories, and government spending, focusing on consumer spending and private investment.

Despite aggressive interest rate hikes by the Federal Reserve in 2022 and 2023—raising the benchmark rate to a 23-year high and reducing annual inflation from a peak of 9.1% to 2.9%—the economy has continued to expand, and employment has remained strong.

With inflation now near the Fed’s target and expected to decrease further, Chair Jerome Powell has signaled a potential shift in policy. The Fed may begin lowering interest rates in its September meeting to support economic growth and avoid a recession. Lower rates could lead to reduced borrowing costs for auto loans, mortgages, and other consumer credit.